Offshore oil and gas is set to flow within five years, and Senegal is bracing itself for the impact

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Senegal's aspirations to become a major hydrocarbons producer are moving ever closer to realisation. Determined that the West African state should avoid the financial mismanagement that has dogged many an oil-rich African country, President Macky Sall is hurrying to implement a regulatory and legislative framework.

Senegal is basing plans for its new life as a gas and oil producer on an annual government revenue flow of CFA600bn ($1.04bn) from the two prospective hydrocarbons ventures—the SNE oilfield and the Greater Tortue/Ahmeyim gas project. Both are scheduled to start producing export revenues in the early 2020s.

Based on a highly conservative $38.7/barrel average future oil price, this revenue flow allows for a substantial financial safety margin. That makes good sense for a country that knows it will have substantial debt service obligations to meet five years from now.

At a "National Concertation" forum in June, government and civil society decided that one third of the revenue will be set aside in a "future generations" fund. Most of the rest will be allocated to the government current budget for public investment projects, with 5% set aside for a stabilisation fund, to cushion the impact of short-term fluctuations in oil prices.

"The government is planning for an oil savings buffer. The IMF recommends that the planned expenditures are based on a conservative oil price assumption against the risk of oil revenue volatility," Cemile Sancak, the IMF's Resident Representative to Senegal, told Petroleum Economist. "Based on initial estimates, the revenues from oil and gas are expected to be on a scale that Senegal would be able to absorb."

Imminent FIDs

These choices are being made as operator BP prepares to take a final investment decision on the Tortue/Ahmeyim export project, which will produce liquefied natural gas from reserves straddling the Senegal/Mauritania maritime border. After recent meetings with the governments of Senegal and Mauritania, BP chief executive Bob Dudley confirmedthat FID is expected before the end of this year. BP and partner Kosmos Energy have said the project could be operational as early as 2021.

The group has already awarded contracts for construction of the production system and the floating LNG vessel to TechnipFMC and Cosco Shipping Heavy Industry respectively. The project will have a production capacity of 2.5m tonnes a year of LNG and 20,000 barrels a day of liquids. Gas reserves within the complex are estimatedat over 25 trillion cubic feet—possibly much more.

The current agreement between Senegal and Mauritania provides for a 50/50 split in share of output and revenue from the project. However, there's a recognition that the situation could evolve over time, as exploration continues.

"The agreement with Mauritania provides for a five-yearly renegotiation," Papa Alioune Badara Paye, deputy permanent secretary of the Senegalese arm of the Extractive Industries Transparency Initiative (EITI) says. "If further discoveries show that more of the deposit lies in one country's waters than the other's, then the split in output can be renegotiated."

Meanwhile, Cairn Energy and its partner Woodside hope to secure government approval for their exploitation plan for the SNE oilfield by the end of this year and take FID in 2019. Woodside is due to take over the operatorship imminently, though the process is being held up by a legal dispute with minority shareholder Far over Woodside's purchase of a 35% stake in the project from ConocoPhillips in 2016.

First oil from SNE is expected in 2021-23. The export project is targeting an initial production plateau of 75,000-125,000 b/d through a floating production storage and offloading vessel. SNE lies entirely within Senegalese waters, around 100km (62 miles) offshore from the capital Dakar. Cairn estimates the field has 563m barrels of recoverable resources.

New institutions

Besides being keen to avoid Senegal becoming victim to the curse of oil, Macky Sall also has a political imperative to get the sector in shape. He's running for re-election early next year and is facing a fiercely critical opposition. He needs to show voters that a transparent system for managing oil and gas revenue will be in place.

The government had already created Cos Pétrogaz (the Comité d'Orientation Stratégique du Pétrole et du Gaz), which answers directly to the president's office and is tasked with developing the overall national strategy for the hydrocarbons sector.

Another institution, GES Pétrogaz (the Unité de gestion pétrole et gaz) was created in November 2017, tasked with implementing the national strategy. GES Pétrogaz has been recruiting experts in petroleum legislation, oil engineering, logistics, procurement and other technical specialisms. The World Bank has provided technical advice and extra funding so the unit can go beyond normal civil service pay guidelines and pay the competitive professional salaries required to attract the right personnel.

Environment safeguards

Staffing in the energy minister's cabinet, both in an advisory team and in the private office, is being beefed up, as is the existing hydrocarbons directorate within the ministry.

The environment ministry is one of several other government departments that's being reinforced, while a national oil and gas institute was established in February this year. Its first director, Aguibou Ba, was appointed the following month.

In March, the government released proposed regulations for questions such as safety, hygiene, environmental protection, operating procedures, financial accounting for hydrocarbon activities and other areas.

In April, the government presented its draft new oil sector law, written by the energy ministry and national oil company Petrosen. Meanwhile, Cos Pétrogaz has been working on a draft of the legislation to govern local content in hydrocarbons sector procurement.

A reform of the framework law for the environment is also in preparation. In May, the environment ministry organised discussions of the proposed new rules to protect biodiversity and set controls on pollution and requirements for a sustainable approach to oil and gas development. By end-2018, the government expects to launch an expert baseline study of the environmental impact of the hydrocarbons sector.

Officials recognise that the development of the two offshore projects is already moving forward, before all these new environmental rules are in place; but they intend to move fast in terms of reforming regulations. The Netherlands is helping Senegal draft this reform.

Transparency progress

Senegal has been a member of EITI since 2013. In May this year, the body said the country had made satisfactory progress. But governance structures are set to be further reinforced. One area where the rules are likely to be tightened up is the question of beneficial ownership, to ensure greater transparency over who really owns and controls hydrocarbons assets.

To ensure transparency, some Senegal watchers suggest that all oil and gas operations should be required to present accounts meeting International Financial Reporting Standards. It's likely that Senegal will require all individual projects to be accounted for on a standalone basis and insist that each individual shareholding business also submits full accounts.

Petrosen's revised role

The government also plans to clarify and simplify the role of Petrosen. Up until now, it has acted both as a commercial investor, holding the Senegalese state's share in joint ventures, and as part of the state regulatory structure. This made sense because upstream used to be relatively unimportant and Petrosen was one of the main repositories of oil and gas expertise. But the company's dual role could lead to potential conflicts of interest in an era of large-scale hydrocarbons investments.

Petrosen is still helping the energy ministry draft rules and legislation. But once this process is complete, probably by around the end of this year, the company will retreat into a purely business role as an investor. Its regulation specialists will mainly transfer to the government machine, joining the energy ministry.

As an investor, Petrosen will hold the 10% stake in each project that the state will receive free by right. But the company will also buy a further 8% in each oil project and 10% in each gas venture-percentages that were agreed in June at the National Concertation.

Time for action

Civil society groups have been widely involved in consultations over oil and gas developments, notably over how revenues should be shared. But EITI's Paye said elected politicians have generally seemed less interested.

"Between August and December 2017, we did three briefing seminars for the members of the parliamentary network for the good governance of mineral resources. But since early 2018 they've shown very little interest," he says.

"This is a big mistake, given that it is now that Senegal is taking the key decisions on these issues. This is the critical moment."